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Univ. of Toledo College of Law

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Monday, May 19, 2008

SEC Settles Backdating Charges Against Brooks Automation

The SEC settled a civil injunctive action against Brooks Automation, Inc., a semiconductor capital equipment company, that alleged that it overstated income and understated employee compensation expenses in its financial statements by $64.5 million during the period from 1996 through 2005 as a result of its failure to properly account for employee stock options. According to the complaint, a backdated exercise in 1999 by former President and CEO Robert J. Therrien and other grants for which the company improperly accounted resulted in Brooks overstating its net income by as much as 30% in fiscal year 2000 alone. Brooks misstated in its public filings that all stock options were granted at or above the fair market value of the stock on the date of the award, when that was not the case. Brooks also filed misstated financial statements with the SEC in its Forms 10-K and 10-Q that did not recognize compensation expense for the company's stock option grants, as required by generally accepted accounting principles.

The Complaint alleges that, in November 1999, Therrien, upon learning that an option to exercise 225,000 shares had expired worthless the preceding August, participated in creating, and signed, false documents resulting in the issuance of in-the-money options to him, which he immediately exercised, to purchase 225,000 shares of Brooks. As a result of his fraudulent exercise alone, Therrien received $5.7 million in undisclosed compensation from Brooks. Therrien was previously charged by the Commission in a separate, unsettled action filed in July 2007.

The Complaint further alleges several instances of company-wide options grants with purported grant dates that were inaccurate. For example, according to the complaint, the option grant with a purported date of October 1, 2001 in fact was not finalized until November 30, 2001. During that period the price of Brooks' stock rose by more than $11 per share, producing immediate compensation to the recipients of the grant of approximately $22 million, which Brooks failed to disclose in its financial reports.

Brooks, without admitting or denying the allegations in the Commission's complaint, agreed to settle the matter by consenting to a permanent injunction from further violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934 and Rules 12b-20, 13a-1, and 13a-13 thereunder.

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